Credit customers provide you the opportunity to remain competitive with others in your industry by offering flexible payment plans. Credit extension is a great way to grow your business.  However, all customers are not the same, and it is important to manage your accounts receivable aging and give terms only to those customers who deserve it.

Once again, there are 5 types of paying customers:

• Prompt and Regular
• Slow but Steady
• First Round Collections
• Legal Collections
• Never Going to Pay

We have already discussed the first two categories, the best payers who will get your best terms.  Can you still extend credit to customers to patients who do not pay you? Let’s look at two types.

First Round Collection – These credit customers, when sent to a collection agency or attorney, pay voluntarily. They want to get back into your good graces. They need your product or service. Customers with seasonal needs often fall into this category. A fuel oil dealer client of ours saw a big rush of payments after the first frost. Require these clients clear up any old balance before you extend any more credit.  After payment, require a deposit or convert them to a cash basis.

When you hire a collection agency, be very clear about your goals – which customers you want to keep and which you wish to discharge. Work with your collection agency and give them all the information they need to get the job done.

Legal Collections – These credit customers are recalcitrant and ignore you completely and will not pay without a legal action. Some will pay when they are sued. For other customers, you will have to obtain a court judgment against them, and then perhaps they will get religion and pay. For still others, you may have to resort to property liens, wage garnishments or other extreme measures. It should go without saying, but these customers should not have any credit with you, and actually should not be customers at all.

When choosing legal collection files, it is very important to make sure you research to make sure the customer has assets to attach, or if you believe they will own something in the future. Remember that the court does not collect the money for you. You or your collection agency still have to get the money.

So, yes, there are times when the more difficult payers can redeem themselves and stay in your good graces. In the end, it is all about managing the risk, and only you can do that.